Will St Louis Home Prices Decline?

The short answer is yes.  They decline every year as we head into winter due to the seasonal nature of the business.  If you look at the first chart below which depicts the median price of homes sold in the St Louis 5-County core market since 1998, you will notice a very consistent pattern of prices rising in the spring and summer, then declining in the fall and winter.  For the most part, the other pattern you will see is that the peak each spring is higher than the spring before and the bottom each winter is higher than the winter before, but there are exceptions to that such as after the bubble burst in 2008.

So, as we head into the fall season, we can expect home prices to decline.  The question is, given all that is going on in the economy, including mortgage interest rates in excess of 6%, will the decline be more than the typical “seasonal adjustment”?  To address this, the first thing we can look at is the percentage decline we’ve seen in the recent past from the summer peak to September which is as follows:

  • 2019 – Summer peak to September –10.9%
  • 2020 – Summer peak to September – 0% (no change)
  • 2021 -Summer peak to September –1.9%
  • 2022 -Summer peak to September –10.2%

What this reveals is this years decline, while definitely larger than the last two years, is actually less than the decline in 2019 (which was a good market) so this doesn’t jump out as particularly alarming.  I think it’s worth saying that we are no doubt going to have a market “correction” or “adjustment” at a minimum because home prices could not simply keep increasing like they have been so this years seasonal adjustment may just be a return to normal.  Having said that though, since the “bottom” of the winter market price-wise doesn’t usually come until January or February, we will need to watch the next couple of months to see if this downward price trend remains consistent with historic norms or in fact picks up steam and looks like it’s headed for a bigger decline than normal.  My guess is at this point it the latter.  While I’m not a “gloom and doomer” in fact, I like to think of my self as an opportunist and see opportunities in challenging markets, I just think I’m being realistic.  There are a lot of moving balls in the air right now with regard to our economy and more unknowns than certainties in my opinion.

We can’t underestimate the impact of interest rates either…

As the second chart below illustrates, mortgage interest rates have more than doubled in the past year.  One year ago, the internet rate on a 30-year fixed rate mortgage was 3%, today it is 6.47%.  To put this in perspective, the principal and interest payment on a $300,000 mortgage one year ago was $1,265 and today it’s  $1,890.  This definitely affects affordability and puts pressure on home prices.  A buyer today that can afford the same payment as a buyer that bought a year ago can only borrow $200,000 and have the same payment as the buyer a year ago on a $300,000 loan…that hurts!  We have to remember hindsight is 20-2o, so there’s no point in dwelling on what you missed, however, we can’t ignore the affect it may have on home prices.

Showings are slowing, price reductions and days on the market are increasing…

The chart at the bottom shows showing activity on listings in the St Louis and surrounding areas.  The chart depicts the showing activity for each week compared with what most would consider the slowest week of the year, the first week of the year.  As you can see, this time in 2020, there were over 50% more showings in the past week than during the first week of the year and last year there were over 22% more.  This year the past week has seen just about the same number of showings as during the slowest time of the year, the first week of the year. As the table at the bottom of this page shows, 40% of the active listings have reduced their listing price from the original price and the median time on the market is 45 days.  Both of these numbers are much higher than we saw in the past and are indicative of a softening market.

Where we are headed…

As I mentioned earlier, I believe there certainly is a correction coming with regard to home prices but how much of a correction we are looking at is dependent upon so many variables at this point I think it’s impossible to say to what extent this correction will be.  There are certainly people out there predicting an ugly real estate market in the coming months with big declines in home prices and sales and there are others predicting just a modest correction.  I think St Louis has the benefit of being an affordable market and not having seen tremendous new construction activity like many markets did so I think we’re poised to come out better.  We just have to remember, “better” may still be pretty painful if the market crashes hard in many areas of the country.

More to come…stay tuned…

St Louis 5-County Core Market Home Prices – 1998 – Present

(click on chart for live, interactive chart)

St Louis 5-County Core Market Home Prices - 1998 - Present

Mortgage Interest Rates -be MND Rate Index – Updated Daily

(click on chart for live, interactive chart)

Mortgage Interest Rates -be MND Rate Index - Updated Daily

Showings On Listings In St Louis Area

(click on chart for live, interactive chart)

Showings On Listings In St Louis Area

St Louis 5-County Core Market Active Listing Data

(click on table  for complete report)

St Louis 5-County Core Market Active Listing Data


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